Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Chapter 28, Problem 38P

Suppose the Fed conducts an open market purchase by buying $ 1 0 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets - reserves 30, bonds 50, and loans 50; Liabilities - deposits 300 and equity 30.

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Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Great Western Bank. Sketch out the balance sheet changes that will occur as Great Western restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Great Western Bank contains the following information (all in $ millions): Assets – reserves 30, bonds 50, and loans 250; Liabilities – deposits 300 and equity 30.
Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 5 Checkable deposits 50 Loans 25     Securities 20     Total 50 Total 50   What is the required reserve ratio? 25%   40%   5%   10%     Suppose that the Federal Reserve (the "Fed") buys $4 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? Checkable deposits rise by $4 million, and the banking system's holdings of securities rise by $4 million.   The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million.   Checkable deposits rise by $4 million, and the banking system's total reserves rise by $4 million.   The banking system's holdings of securities fall by $4 million,…
Money Supply Money Demand Interest Rate Investment (at Interest Rate Shown) $400 $600 2% $700 $400 500 3 600 $400 400 4 500 $400 300 5 300 $400 200 6 200 Answer the question on the basis of the information in the table. Suppose the legal reserve requirement is 20 percent and initially there are no excess reserves in the banking system. If the Fed wished to reduce the interest rate by 1 percentage point, it would     A)  sell $10 of government bonds in the open market.   B)  sell $20 of government bonds in the open market.   C)  buy $10 of government bonds in the open market.   D)  buy $20 of government bonds in the open market.

Chapter 28 Solutions

Principles of Economics 2e

Ch. 28 - List the three traditional tools that a central...Ch. 28 - How is bank regulation linked to the conduct of...Ch. 28 - What is a bank run?Ch. 28 - In a program of deposit insurance as it is...Ch. 28 - In government programs of bank supervision, what...Ch. 28 - What is the lender of last resort?Ch. 28 - Name and briefly describe the responsibilities of...Ch. 28 - Explain how to use an open market operation to...Ch. 28 - Explain how to use the reserve requirement to...Ch. 28 - Explain how to use the discount rate to expand the...Ch. 28 - How do the expansionary and contractionary...Ch. 28 - How do tight and loose monetary policy affect...Ch. 28 - How do expansionary, tight, contractionary, and...Ch. 28 - Which kind of monetary policy would you expect in...Ch. 28 - Explain how to use quantitative easing to...Ch. 28 - Which kind of monetary policy would you expect in...Ch. 28 - How might each of the following factors complicate...Ch. 28 - Define the velocity of the moneyCh. 28 - What is the basic quantity equation of money?Ch. 28 - How does a monetary policy of inflation target...Ch. 28 - Why do presidents typically reappoint Chairs of...Ch. 28 - In what ways might monetary policy be superior to...Ch. 28 - The term moral hazard describes increases in risky...Ch. 28 - Explain what would happen if banks were notified...Ch. 28 - A well-known economic model called the Phillips...Ch. 28 - How does rule-based monetary policy differ from...Ch. 28 - Is it preferable for central banks to primarily...Ch. 28 - Suppose the Fed conducts an open market purchase...Ch. 28 - Suppose the Fed conducts an open market sale by...Ch. 28 - All other things being equal, by how much will...Ch. 28 - Suppose now that economists expect the velocity of...Ch. 28 - If GDP is 1,500 and the money supply is 400, what...Ch. 28 - If GDP now rises to 1,600, but the money supply...Ch. 28 - If GDP now falls back to 1,500 and the money...
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